- The US Dollar Index climbs on Thursday, holding within 103.00–104.00.
- Traders expect the Fed to stay on track with 2025 rate cuts.
- Geopolitical uncertainty drives safe-haven demand for US assets.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, is trading stronger against major peers on Thursday, avoiding further downside pressure. Traders remain focused on the Federal Reserve’s (Fed) latest policy stance, which reinforced expectations for two rate cuts in 2025. Despite stronger economic data, the index remains confined within the 103.00–104.00 range.
Daily digest market movers: US Dollar rises as Fed keeps rates steady and geopolitical risks intensify
- The Federal Reserve left interest rates unchanged, reaffirming projections for two rate cuts in 2025.
- Fed Chair Jerome Powell downplayed the inflationary impact of tariffs, calling it a temporary effect, but acknowledged the difficulty in assessing its broader implications.
- Recession risks have edged higher, though Powell indicated they remain relatively low for now.
- US jobless claims came in lower than expected, pushing the US Dollar higher above 104.00.
- Geopolitical uncertainty remains elevated, with no clear path to a ceasefire in Ukraine and tensions rising in Turkey and Gaza.
- US bond yields are falling as investors seek safety in Treasuries amid economic and geopolitical uncertainty.
- Expectations of lower yields once the Fed begins cutting rates are reinforcing demand for US bonds.
- European markets show mixed sentiment, while US stocks trade cautiously following the Fed’s policy decision.
Technical analysis: US Dollar Index stabilizes but remains below key resistance
The US Dollar Index continues to show signs of recovery, but upside momentum remains limited. The Relative Strength Index (RSI) is gradually moving higher, while the Moving Average Convergence Divergence (MACD) histogram remains in negative territory, though bearish pressure is easing.
Immediate resistance stands at 104.20, with further hurdles at 104.80 and 105.20. On the downside, 103.40 serves as the initial support, with a break lower exposing 102.90. Additionally, a bearish crossover between the 20-day and 100-day simple moving averages (SMAs) around 105.00 suggests a potential downside risk, which may act as a sell signal if sustained.
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.
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